Hedging Your Bets Against Currency Depreciation

The U.S. has seen long-term dollar depreciation, and it is not alone. Currencies from Europe, Canada and Japan suffer the same kind of instability. This has been the case since 1971, when the gold standard was dropped in favor of a fiat currency system.

1971 marks the beginning of dollar depreciation

The Bretton Woods Agreement, which took place in 1948 and.

The charge is a tracer of the potential earnings to a bet. There are many kinds of costs:

• European Fee: A fee as integer or decimal (eg one.5 or three).

• English Charge: A charge as a fraction (eg one/2 or 2/one).

• American Fee: A fee that could be expressed as positive or unfavorable quantity (eg -200 or 200).

was a reaction to World War II, had brought about a fixed rate for gold of $35 an ounce. This rate had made it common for investors in gold bullion, coins and bars to frequently trade dollars for gold.

Nixon was acting out of fear for the stability of the U.S. economy when he declared the move to the fiat currency system. Ironically, many now believe that the current dollar devaluation and economic instability are direct results of this choice.

The gold/dollar relationship: one goes up while the other goes down

Dollar devaluation following the 1971 move to fiat currency had drastic effects on the trading price of gold. While it started at $35 per ounce, it was up to over $800 an ounce in 1980. Interestingly, inflation ran rampant during these years, causing the dollar to be worth less and less on international trading markets.

This gold/dollar relationship trend repeated itself from the early 1980s until 2002, when the U.S. dollar grew in value, and gold prices inversely went down. During these years gold traded at between $250 and $550.

Then, in 2002, the boom and bust economy struck again. Recent gold trading prices have been hovering around $1600 - $1800 per ounce.

Gold bullion's value looks to keep going up

The U.S. economy is anything but constant. The one aspect that can be counted on, however, is the inverse gold/dollar relationship. The state of the economy is a great debate, and the one factor that cannot be disputed is that debt, both home and abroad, continues to mount.

Since most countries, the U.S. included, generally answer this sort of situation by raising debt ceilings and increasing the amount of currency in circulation, the only real guarantee is that dollar devaluation will continue.

As history has shown, the dollar depreciation inherent to the fiat currency system will cause the value of gold to continue to rise in the coming years. Even if the economy does eventually reach a relative level of stability, gold prices are not likely to see a drastic fall again.

Not only does the tangible nature of gold bullion, coins and other real-world items make it a better bet than most, the current economic climate dictates that precious metals will continue to be the most stable investment available.